LATEST JURISPRUDENCE IN COMMERCIAL LAW

BAR 2015 (Part II)

By: Judge Ella Dumlao-Escalante

CORPORATION - CORPORATE REHABILITATION -FRIA

BPI FAMILY SAVINGS BANK, INC v. ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469, March 25, 2015 (Perlas-Bernabe)

Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors of St. Michael
Diagnostic and Skin Care Laboratory Services and Hospital (St. Michael Hospital), a 5-storey secondary
level hospital built on their property located in Molino 2, Bacoor, Cavite. They wanted to upgrade St.
Michael Hospital into a modern, well-equipped 11-storey hospital so they purchased two (2) parcels of
land adjoining their existing property. Thereafter, they incorporated SMMCI, with which entity they
planned to eventually consolidate St. Michael Hospitals operations.

To finance the construction, spouses Rodil obtained from BPI a loan (more than P23M plus
interests) secured by real estate mortgages over the properties, upon which the hospital was constructed.

However, spouses Rodil suffered financial losses due to problems with the first contractor so they
deferred the original construction plans for the 11-storey hospital building and, instead, engaged the
services of another contractor for the completion of the remaining structural works of the unfinished
building up to the 5th floor. The lack of funds for the finishing works of the 3rd, 4th and 5th floors,
however, kept the new building from becoming completely functional and, in turn, hampered the plans
for the physical transfer of St. Michael Hospitals operations to SMMCI which never became operational.
With the unpaid loan, BPI foreclosed the mortgages. BPI later agreed to postpone the auction sale.

SMMCI filed a petition for rehabilitation with the RTC contending that it could not meet its
obligations with BPI. The RTC and CA approved the rehabilitationn of SMMCI.

ISSUE: Is the rehabilitation of SMMCI proper?

Restoration is the central idea behind the remedy of corporate rehabilitation. In common
parlance, to restore means to bring back to or put back into a former or original state. Case law
explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and solvency,
the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their
claims out of its earnings.43 Consistent therewith is the terms statutory definition under Republic Act
No. 10142,44 otherwise known as the Financial Rehabilitation and Insolvency Act of 2010 (FRIA),
which provides:

Section 4. Definition of Terms. As used in this Act, the term:

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of payments
projected in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated.chanrobleslaw

In other words, rehabilitation assumes that the corporation has been operational but for some
reasons like economic crisis or mismanagement had become distressed or insolvent, i.e., that it is
generally unable to pay its debts as they fall due in the ordinary course of business or has liability that are
greater than its assets. Thus, the basic issues in rehabilitation proceedings concern the viability and
desirability of continuing the business operations of the distressed corporation, all with a view of
effectively restoring it to a state of solvency or to its former healthy financial condition through the
adoption of a rehabilitation plan.

In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a position of
successful operation and solvency at the time the Rehabilitation Petition was filed on August 11, 2010.
While it had indeed commenced business through the preparatory act of opening a credit line with BPI
Family to finance the construction of a new hospital building for its future operations, SMMCI itself
admits that it has not formally operated nor earned

any income since its incorporation. This simply means that there exists no viable business
concern to be restored. Perforce, the remedy of corporate rehabilitation is improper.
 CORPORATION - Corporate Officers

COSARE v BROADCOM ASIA, INC.

G.R. No. 201298 February 5, 2014 (J. Reyes)

Cosare was employed as a salesman by Arevalo, who was then in the business of selling broadcast
equipment needed by television networks and production houses. In December 2000, Arevalo set up the
company Broadcom, still to continue the business of trading communication and broadcast equipment.
Cosare was named an incorporator of Broadcom, having been assigned 100 shares of stock with par value
of P1.00 per share. In October 2001, Cosare was promoted to the position of Assistant Vice President for
Sales (AVP for Sales) and Head of the Technical Coordination.
The relationship between the parties turned sour ensuing in a case for constructive dismissal filed
by Cosare against Broadcom Asia before the labor arbiter. Broadcom principally raised the issue that it is
the regular courts, not the labor tribunals, which has jurisdiction over the dispute. Cosare, being an AVP
for sales, was supposedly an officer and a stockholder of the company.

Was Cosare a corporate officer?

NO. There are two circumstances which must concur in order for an individual to be considered a
corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is
under the corporations charter or by-laws; and (2) the election of the officer is by the directors or
stockholders. It is only when the officer claiming to have been illegally dismissed is classified as such
corporate officer that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of
the trial courts.

The by laws of Broadcom listed only the President, Vice President and Secretary as its officers.
Broadcom failed to sufficiently establish that the position of AVP for Sales was created by virtue of an act
of Broadcoms board, and that Cosare was specifically elected or appointed to such position by the
directors. No board resolutions to establish such facts form part of the case records.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases filing
did not necessarily make the action an intra- corporate controversy. "Not all conflicts between the
stockholders and the corporation are classified as intra-corporate. There are other facts to consider in
determining whether the dispute involves corporate matters as to consider them as intra-corporate
controversies." Time and again, the Court has ruled that in determining the existence of an intra-
corporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account. Considering that the pending dispute particularly
relates to Cosares rights and obligations as a regular officer of Broadcom, instead of as a stockholder of
the corporation, the controversy cannot be deemed intra-corporate. This is consistent with the
"controversy test."
Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The
controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties correlative rights and obligations under the Corporation Code
and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy or if there will still be conflict even if the relationship
does not exist, then no intra-corporate controversy exists.

INTELLECTUAL PROPERTY LAW

COPYRIGHT - LIVE BROADCAST OF NEWS; FAIR USE PRINCIPLE

ABS-CBN CORPORATION v. FELIPE GOZON,

G.R. No. 195956, March 11, 2015 (J. Leonen)

The controversy arose from GMA-7's news coverage on the homecoming of Filipino overseas
worker and hostage victim Angelo dela Cruz.

Overseas Filipino worker Angelo dela Cruz was kidnapped by Iraqi militants and as a condition
for his release, a demand was made for the withdrawal of Filipino troops in Iraq. After negotiations, he
was released by his captors and was scheduled to return to the country in the afternoon of 22 July 2004.
Occasioned by said homecoming and the public interest it generated, both GMA Network, Inc. and ABS
CBN made their respective broadcasts and coverage of the live event.
 ABS-CBN conducted live audio-video coverage of and broadcasted the arrival of Angelo dela Cruz
at the Ninoy Aquino International Airport (NAIA) and the subsequent press conference.

ABS-CBN allowed Reuters Television Service (Reuters) to air the footages it had taken earlier under a
special embargo agreement. Under this agreement, any of the footages it took would be for the "use of
Renter's international subscribers only, and shall be considered and treated by Reuters under 'embargo'
against use by other subscribers in the Philippines. No other Philippine subscriber of Reuters would be
allowed to use ABS-CBN footage without the latter's consent."

GMA-7, to which Gozon and others are connected, "assigned and stationed news reporters and
technical men at the NAIA for its live broadcast and non-live news coverage of the arrival of dela Cruz.
GMA-7 subscribes to both Reuters and Cable News Network (CNN). It received a live video feed of the
coverage of Angelo dela Cruz's arrival from Reuters. GMA-7 immediately carried the live newsfeed in its
program "Flash Report," together with its live broadcast. Allegedly, GMA-7 did not receive any notice or
was not aware that Reuters was airing footages of ABS-CBN. GMA-7's news control room staff saw neither
the "No Access Philippines" notice nor a notice that the video feed was under embargo in favor of ABS-
CBN. Subsequently, ABS-CBN filed the Complaint for copyright infringement.

The City Prosecutor found probable cause to indict GMA-7. On a Petition for Review before the
DOJ, it was opined that GMA acted in good faith and no charges may be filed. This was reversed on a
motion for reconsideration filed by ABS CBN. GMA7 brought the issue to the Court of Appeals which
adopted the first DOJ view holding that no probable cause existed to prosecute GMA for copyright
infringement.

Is a news footage copyrightable?

YES. It is true that under Section 175 of the Intellectual Property Code, "news of the day and
other miscellaneous facts having the character of mere items of press information" are considered
unprotected subject matter. However, the Code does not state that expression of the news of the
day, particularly when it underwent a creative process, is not entitled to protection.

News or the event itself is not copyrightable. However, an event can be captured and presented in
a specific medium. As recognized by this court in JOAQUIN v. DRILON, G.R. No. 108946, January 28,
1999, television "involves a whole spectrum of visuals and effects, video and audio." News coverage in
television involves framing shots, using images, graphics, and sound effects. It involves creative process
and originality. Television news footage is an expression of the news.

Copyright protects the manner of expression of news reports, "the particular form or collocation
of words in which the writer has communicated it."

{RULING in JOAQUIN v. DRILON: the copyright does not extend to the general concept or
format of its dating game show.}

What are the rights of ABS CBN?

The authors of a work are granted several rights in relation to it, including copyright or economic
rights.

"SECTION 177. Copyright or Economic Rights. Subject to the provisions of Chapter

VIII, copyright or economic rights shall consist of the exclusive right to carry out, authorize or
prevent the following acts:

177.1. Reproduction of the work or substantial portion of the work;

177.2. Dramatization, translation, adaptation, abridgment, arrangement or other

transformation of the work;

177.3. The first public distribution of the original and each copy of the work by sale or
other forms of transfer of ownership;

177.4. Rental of the original or a copy of an audiovisual or cinematographic work, a

work embodied in a sound recording, a computer program, a compilation of data and other
materials or a musical work in graphic form, irrespective of the ownership of the original or
the copy which is the subject of the rental; (n)
 177.5. Public display of the original or a copy of the work;

177.6. Public performance of the work; and

177.7. Other communication to the public of the work."

Under Section 211 of the Intellectual Property Code, broadcasting organizations are granted a more
specific set of rights called related or neighboring rights:

"SECTION 211. Scope of Right. Subject to the provisions of Section 212, broadcasting
organizations shall enjoy the exclusive right to carry out, authorize or prevent any of the following
acts:
211.1. The rebroadcasting of their broadcasts;

211.2. The recording in any manner, including the making of films or the use of video
tape, of their broadcasts for the purpose of communication to the public of television
broadcasts of the same; and

211.3. The use of such records for fresh transmissions or for fresh recording."

These rights however are limited by:

"Section 212.1. The use by a natural person exclusively for his own personal purposes;

212.2. Use as short excerpts for reporting current events;

212.3. Use solely for the purpose of teaching or for scientific research; and

212.4. Fair use of the broadcast subject to the conditions under Section 185."

May GMA invoke the fair use doctrine under Sec. 212.4?

This is a matter of defense that may be threshed out in a full blown trial.

In determining fair use, Section 185 of the Intellectual Property Code lists four (4) factors to
determine if there was fair use of a copyrighted work:

1. The purpose and character of the use, including whether such use is of a commercial nature or is for
non-profit educational purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and



4. The effect of the use upon the potential market for or value of the copyrighted work.

First, the purpose and character of the use of the copyrighted material must fall under those listed
in Section 185, thus: "criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research, and similar purposes." The purpose and character requirement is
important in view of copyright's goal to promote creativity and encourage creation of works. Hence,
commercial use of the copyrighted work can be weighed against fair use.

The "transformative test" is generally used in reviewing the purpose and character of the usage of
the copyrighted work. This court must look into whether the copy of the work adds "new expression,
meaning or message" to transform it into something else.

Second, the nature of the copyrighted work is significant in deciding whether its use was fair. If
the nature of the work is more factual than creative, then fair use will be weighed in favor of the user.

Third, the amount and substantiality of the portion used is important to determine whether usage
falls under fair use. An exact reproduction of a copyrighted work, compared to a small portion of it, can
result in the conclusion that its use is not fair. There may also be cases where, though the entirety of the
copyrighted work is used without consent, its purpose determines that the usage is still fair.
 Lastly, the effect of the use on the copyrighted work's market is also weighed for or against the
user. If this court finds that the use had or will have a negative impact on the copyrighted work's market,
then the use is deemed unfair. In the case of the aerial broadcasters, advertising sales generate most of the
profits derived from news reports. Advertising rates are, in turn, governed by market share. Market share
is determined by the number of people watching a show at any particular time, relative to total viewers at
that time.

May GMA invoke good faith in arguing that no probable cause exists?

NO. Unless clearly provided in the law, offenses involving infringement of copyright protections
should be considered malum prohibitum. It is the act of infringement, not the intent, which causes the
damage. To require or assume the need to prove intent defeats the purpose of intellectual property
protection. Notice of fact of the embargo from Reuters or CNN is not material to find probable cause that
respondents committed infringement.

In Habana v. Robles, 369 Phil. 764 (1999), knowledge of the infringement is presumed when the
infringer commits the prohibited act. A copy of a piracy is an infringement of the original, and it is no
defense that the pirate, in such cases, did not know whether or not he was infringing any copyright; he at
least knew that what he was copying was not his, and he copied at his peril. In cases of infringement,
copying alone is not what is prohibited. The copying must produce an "injurious effect".

May the corporate officers be sued given that GMA has a personality separate and distinct
from the former?

YES, but only as to Grace Dela Pea-Reyes as the Head of the News Operation and John Oliver T.
Manalastas as the Program Manager. They cannot escape liability since the news control room was under
their direct control and supervision. Clearly, they must have been aware that the said footage coming from
Reuters or CNN has a "No Access Philippines" advisory or embargo thus cannot be re-broadcast. We find
no merit to the defense of ignorance interposed by the respondents. It is simply contrary to human
experience and logic that experienced employees of an established broadcasting network would be remiss
in their duty in ascertaining if the said footage has an embargo.

But Gozon, Duavit, Jr., Flores, and Soho did not have active participation in the commission of
the crime charged. Mere membership in the Board or being President per se does not mean knowledge,
approval, and participation in the act alleged as criminal. There must be a showing of active participation,
not simply a constructive one.

INTELLECTUAL PROPERTY LAW

TRADEMARK INFRINGMENT; ORDINARY PRUDENT PURCHASER; TEST TO

DETERMINE WHETHER PRODUCTS ARE CLOSELY RELATED

TAIWAN KOLIN CORPORATION, LTD. v. KOLIN ELECTRONICS CO., INC.,

G.R. No. 209843, March 25, 2015 (J. Velasco)

Taiwan Kolin filed with the Intellectual Property Office (IPO), then Bureau of Patents,
Trademarks, and Technology Transfer, a trademark application, docketed as Application No. 4-1996-
106310, for the use of KOLIN on a combination of goods, including colored televisions, refrigerators,
window-type and split-type air conditioners, electric fans and water dispensers. This application was
considered abandoned for Taiwan Kolins failure to respond to IPOs order requiring it to elect one class of
good for its coverage. However, the same application was subsequently revived with Taiwan Kolin electing
Class 9 as the subject of its application, particularly: television sets, cassette recorder, VCD Amplifiers,
camcorders and other audio/video electronic equipment, flat iron, vacuum cleaners, cordless handsets,
videophones, facsimile machines, teleprinters, cellular phones and automatic goods vending machine.
The application would in time be duly published.

Kolin Electronics opposed the revived application insisting that the mark Taiwan Kolin seeks to
register is identical, if not confusingly similar, with its KOLIN mark registered on November 23, 2003,
covering the following products, registered under Class 9: automatic voltage regulator, converter,
recharger, stereo booster, AC-DC regulated power supply, step-down transformer, and PA amplified AC-
DC.

In answer, Taiwan Kolin argued that it should be accorded the benefits of a foreign-registered
mark; that it has already registered the KOLIN mark in the Peoples Republic of China, Malaysia and
Vietnam, all of which are parties to the Paris Convention for the Protection of Industrial Property (Paris
Convention) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);and
that benefits accorded to a well-known mark should be accorded toTaiwan Kolin.

As it turned out, Kolin Electronics KOLIN registration was the subject of a prior legal dispute
between the parties in before the IPO. In the said case, Kolin Electronics own application was opposed by
Taiwan Kolin, being, as Taiwan Kolin claimed, the prior registrant and user of the KOLIN trademark,
having registered the same in Taipei, Taiwan on December 1, 1988. The Bureau of Legal Affairs of the IPO
(BLA-IPO), however, did not accord priority right to Taiwan Kolins Taipei registration absent evidence to
prove that it has already used the said mark in the Philippines as early as 1988. On appeal, the IPO
Director General affirmed the BLA-IPOs Decision. Taiwan Kolin elevated the case to the CA, but without
injunctive relief, Kolin Electronics was able to register the KOLIN trademark in 2003 for its products.
Subsequently, the CA, in 2006, affirmed the Decision of the Director General.

Is Taiwan Kolin entitled to trademark registration of KOLIN over its specific goods of
television sets and DVD players?

{Taiwan Kolin postulates that its goods are not closely related to those of Kolin Electronics. On
the other hand, Kolin Electronics claims their products are closely related, and granting Taiwan Kolins
application for trademark registration would cause confusion as to the public.}

Yes. The parties admit that their respective sets of goods belong to Class 9 of the NCL, which
includes:

Scientific, nautical, surveying, photographic, cinematographic, optical, weighing, measuring,

signalling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus
and instruments for conducting, switching, transforming, accumulating, regulating or controlling
electricity; apparatus for recording, transmission or reproduction of sound or images; magnetic
data carriers, recording discs; compact discs, DVDs and other digital recording media;
mechanisms for coin-operated apparatus; cash registers, calculating machines, data processing
equipment, computers; computer software; fire-extinguishing apparatus

But mere uniformity in categorization, by itself, does not automatically preclude the registration
of what appears to be an identical mark, if that be the case. Emphasis should be on the similarity of the
products involved and not on the arbitrary classification or general description of their properties or
characteristics.

Are the products closely related?

No. The goods should be tested against several factors before arriving at a sound conclusion on
the question of relatedness. Among these are:

(a) the business (and its location) to which the goods belong;
(b) the class of product to which the goods belong;
(c) the products quality, quantity, or size, including the nature of the package, wrapper or
container;
(d) the nature and cost of the articles;
(e) the descriptive properties, physical attributes or essential characteristics with reference to
their form, composition, texture or quality;
(f) the purpose of the goods;
(g) whether the article is bought for immediate consumption, that is, day-to-day household
items;
(h) the fields of manufacture;
(i) the conditions under which the article is usually purchased; and
(j) the channels of trade through which the goods flow, how they are distributed, marketed,
displayed and sold.

Taiwan Kolins goods are classified as home appliances as opposed to Kolin Electronics goods
which are power supply and audio equipment accessories; Taiwan Kolins television sets and DVD players
perform distinct function and purpose from Kolin Electronics power supply and audio equipment; and
Taiwan Kolin sells and distributes its various home apppliance products on wholesale and to accredited
dealers, whereas Kolin Electronics goods are sold and flow through electrical and hardware stores.

Will an ordinary purchaser be confused?

 NO. While both competing marks refer to the word KOLIN written in upper case letters and in
bold font, the Court at once notes the distinct visual and aural differences between them: Kolin
Electronics mark is italicized and colored black while that of Taiwan Kolin is white in pantone red color
background. The differing features between the two, though they may appear minimal, are sufficient to
distinguish one brand from the other.

It cannot be stressed enough that the products involved in the case at bar are, generally speaking,
various kinds of electronic products. These are not ordinary consumable household items, like catsup, soy
sauce or soap which are of minimal cost. The products of the contending parties are relatively luxury
items not easily considered affordable. Accordingly, the casual buyer is predisposed to be more cautious
and discriminating in and would prefer to mull over his purchase. Confusion and deception, then, is less
likely.

To be sure, a person who buys a box of candies will not exercise as much care as one who buys an
expensive watch. As a general rule, an ordinary buyer does not exercise as much prudence in buying an
article for which he pays a few centavos as he does in purchasing a more valuable thing. Expensive and
valuable items are normally bought only after deliberate, comparative and analytical investigation.

TRADEMARK

BIRKENSTOCK ORTHOPAEDIE GMBH AND CO. KG (FORMERLY BIRKENSTOCK

ORTHOPAEDIE GMBH) v PHILIPPINE SHOE EXPO MARKETING CORPORATION
G.R. No. 194307, November 20, 2013 (J. Perlas-Bernabe)

Petitioner, a corporation duly organized and existing under the laws of Germany, applied for
various trademark registrations before the IPO, namely: (a) BIRKENSTOCK for shoes/footwear (b)
BIRKENSTOCK BAD HONNEF-RHEIN & DEVICE COMPRISING OF ROUND COMPANY SEAL AND
REPRESENTATION OF A FOOT, CROSS AND SUNBEAM (c) BIRKENSTOCK BAD HONNEF-RHEIN
& DEVICE COMPRISING OF ROUND COMPANY SEAL AND REPRESENTATION OF A FOOT, CROSS
AND SUNBEAM.

However, registration proceedings of the subject applications were suspended in view of an

existing registration of the mark BIRKENSTOCK AND DEVICE in the name of Shoe Town International
and Industrial Corporation, the predecessor-in-interest of respondent Philippine Shoe Expo Marketing
Corporation.
In this regard, petitioner filed a petition for cancellation of respondent's registration on the ground that it
is the lawful and rightful owner of the Birkenstock marks (Cancellation Case). During its pendency,
however, respondent and/or its predecessor-in-interest failed to file the required 10th Year Declaration of
Actual Use (10th Year DAU), thereby resulting in the cancellation of such mark. Accordingly, the
cancellation case was dismissed for being moot and academic and the application of petitioner was
published.

Respondent opposed the application on the ground that petitioner's mark is identical with or
confusingly similar with its own mark. Likewise, respondent insisted that it continued to use, promote
and advertise its products bearing its mark, despite the cancellation of its registration.

Petitioner, on the other hand, claimed to be the owner of the mark BIRKENSTOCK and
submitted various certificates of registration of the mark BIRKENSTOCK in various countries and that
it has used such mark in different countries worldwide, including the Philippines. On the other hand,
respondent only presented copies of sales invoices and advertisements.

May petitioner's mark be registered?

YES. Respondent admitted that it failed to file the 10th Year DAU within the requisite period, and
as a consequence, it was deed to have abandoned or withdrawn any right or interest over the mark
BIRKENSTOCK. The requirement of a DAU is found under Republic Act No. (RA) 166, the governing
law for respondent's mark. But still, respondennt cannot invoke Section 236 of the IP Code which pertains
to intellectual property rights obtained under previous intellectual property laws, e.g., RA 166, precisely
because it already lost any right or interest over the said mark.

Besides, petitioner has duly established its true and lawful ownership of the mark
BIRKENSTOCK.

It must be emphasized that registration of a trademark, by itself, is not a mode of acquiring

ownership. If the applicant is not the owner of the trademark, he has no right to apply for its registration.
Registration merely creates a prima facie presumption of the validity of the registration, of the
registrants ownership of the trademark, and of the exclusive right to the use thereof.
 Here, petitioner was able to establish that it is the owner of the mark BIRKENSTOCK. It
submitted evidence relating to the origin and history of BIRKENSTOCK and its use in commerce long
before respondent was able to register the same here in the Philippines. It has sufficiently proven that
BIRKENSTOCK was first adopted in Europe in 1774 by its inventor, Johann Birkenstock, a shoemaker,
on his line of quality footwear and thereafter, numerous generations of his kin continuously engaged in
the manufacture and sale of shoes and sandals bearing the mark BIRKENSTOCK until it became the
entity now known as the petitioner. Petitioner also submitted various certificates of registration of the
mark BIRKENSTOCK in various countries and that it has used such mark in different countries
worldwide, including the Philippines. On the other hand, aside from Registration No. 56334 which had
been cancelled, respondent only presented copies of sales invoices and advertisements, which are not
conclusive evidence of its claim of ownership of the mark BIRKENSTOCK as these merely show the
transactions made by respondent involving the same.

Respondent did not act good faith in using and in registering the mark BIRKENSTOCK.
BIRKENSTOCK, obviously of German origin, which is a highly distinct and arbitrary mark. As in all other
cases of colorable imitations, the unanswered riddle is why, of the millions of terms and combinations of
letters and designs available, respondent had to come up with a mark identical or so closely similar tp the
petitioner's if there was no intent to take advantage of the goodwill generated by the petitioner's mark.

UNFAIR COMPETITION;
GEOGRAPHICALLY DESCRIPTIVE MARK and SECONDARY MEANING

SHANG PROPERTIES REALTY CORPORATION (FORMERLY THE SHANG GRAND TOWER

CORPORATION) AND SHANG PROPERTIES, INC. (FORMERLY EDSA PROPERTIES
HOLDINGS, INC. v. ST. FRANCIS DEVELOPMENT CORPORATION,
G.R. No. 190706, July 21, 2014 (J. Perlas-Bernabe)
Respondent is the developer of the St. Francis Square Commercial Center, built sometime in
1992, located at Ortigas Center, Mandaluyong . It sued petitioners for unfair
competition, false or fraudulent declaration, and damages arising from petitioners use and application of
the marks THE ST. FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE, in its buildings
or structures for residential and office. Petitioners contended that respondent cannot appropriate for
itself the words "St. Francis" because it refers to the streets bearing the name St. Francis, particularly,
St. Francis Avenue and St. Francis Street(now known as Bank Drive), both within the vicinity of the
Ortigas Center.

Are petitioners are guilty of unfair competition in using the marks THE ST.
FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE?"

NO. Unfair competition is the passing off (or palming off) or attempting to pass off upon the
public of the goods or business of one person as the goods or business of another with the end and
probable effect of deceiving the public. Passing off (or palming off) takes place where the defendant, by
imitative devices on the general appearance of the goods, misleads prospective purchasers into buying his
merchandise under the impression that they are buying that of his competitors. In other words, the
defendant gives his goods the general appearance of the goods of his competitor with the intention of
deceiving the public that the goods are those of his competitor. The true test of unfair competition is
whether the acts of the defendant have the intent of deceiving or are calculated to deceive the ordinary
buyer making his purchases under the ordinary conditions of the particular trade to which the controversy
relates. Respondent failed to show that petitioner had the intent to deceive the public.

So too, respondent cannot appropriate for itself the mark "ST. FRANCIS" due to the
geographically-descriptive nature of the mark, which thus bars its exclusive appropriability, unless a
secondary meaning is acquired.

Secondary meaning is established when a descriptive mark no longer causes the public to
associate the goods with a particular place, but to associate the goods with a particular source. The public
would make a goods/place association that is, to believe that the goods for which the mark is sought to
be registered originate in that place.

Under Section 123.2 of the IP Code, specific requirements have to be met in order to conclude
that a geographically-descriptive mark has acquired secondary meaning, to wit: (a) the secondary
meaning must have arisen as a result of substantial commercial use of a mark in the Philippines; (b) such
use must result in the distinctiveness of the mark insofar as the goods or the products are concerned; and
(c) proof of substantially exclusive and continuous commercial use in the Philippines for five (5) years
before the date on which the claim of distinctiveness is made.
 Unless secondary meaning has been established, a geographically-descriptive mark, due to its
general public domain classification, is perceptibly disqualified from trademark registration.

Verily, records would reveal that while it is true that respondent had been using the mark ST.
FRANCIS since 1992, its use thereof has been merely confined to its realty projects within the Ortigas
Center, as specifically mentioned. As its use of the mark is clearly limited to a certain locality, it cannot be
said that there was substantial commercial use of the same recognized all throughout the country. Neither
is there any showing of a mental recognition in buyers and potential buyers minds that products
connected with the mark ST. FRANCIS are associated with the same source that is, the enterprise of
respondent. Thus, absent any showing that there exists a clear goods/service-association between the
realty projects located in the aforesaid area and herein respondent as the developer thereof, the latter
cannot be said to have acquired a secondary meaning as to its use of the ST. FRANCIS mark.

TRADEMARK INFRINGEMENT and UNFAIR COMPETITION

ROBERTO CO v. KENG HUAN JERRY YEUNG AND EMMA YEUNG

G.R. No. 212705, September 10, 2014

Greenstone Medicated Oil Item No. 16 (Greenstone) is manufactured by Greenstone

Pharmaceutical, a traditional Chinese medicine manufacturing firm based in Hong Kong and owned by
KengHuan Jerry Yeung (Yeung), and is exclusively imported and distributed in the Philippines by Taka
Trading owned by Yeungs wife, Emma Yeung (Emma).

Emmas brother, Jose Ruivivar III (Ruivivar), bought a bottle of Greenstone from Royal Chinese
Drug Store (Royal) in Binondo, Manila, owned by Ling Na Lau. However, when he used
the product, Ruivivar doubted its authenticity considering that it had a different smell, and the heat it
produced was not as strong as the original Greenstone he frequently used. Having been informed by
Ruivivar of the same, Yeung, together with his son, John Philip, went to Royal on 4 May 2000 to
investigate the matter, and, there, found seven (7) bottles of counterfeit Greenstone on display for sale. He
was then told by Pinky Lau (Pinky) the stores proprietor that the items came from Co of KiaoAn
Chinese Drug Store. According to Pinky, Co offered the products as Tienchi Fong Sap Oil Greenstone
(Tienchi) which she eventually availed from him. Sps. Yeung sued for trademark infringement and unfair
competition.

Is there unfair competition?

YES. Unfair competition is defined as the passing off (or palming off) or attempting to pass off upon the
public of the goods or business of one person as the goods or business of another with the end and
probable effect of deceiving the public. This takes place where the defendant gives his goods the general
appearance of the goods of his competitor with the intention of deceiving the public that the goods are
those of his competitor.

Here, it has been established that Co conspired with the Laus in the sale/distribution of
counterfeit Greenstone products to the public, which were even packaged in bottles identical to that of the
original, thereby giving rise to the presumption of fraudulent intent. In light of the foregoing definition, it
is thus clear that Co, together with the Laus, committed unfair competition, and should, consequently, be
held liable therefor.

Although liable for unfair competition, the Court deems it apt to clarify that Co was properly
exculpated from the charge of trademark infringement considering that the registration of the trademark
Greenstone essential as it is in a trademark infringement case was not proven to have existed during
the time the acts complained of were committed, i.e., in May 2000. The distinctions between suits for
trademark infringement and unfair competition prove useful: (a) the former is the unauthorized use of a
trademark, whereas the latter is the passing off of ones goods as those of another; (b) fraudulent intent is
unnecessary in the former, while it is essential in the latter; and (c) in the former, prior registration of the
trademark is a pre-requisite to the action, while it is not necessary in the latter.

Letter of Credit - Independence Principle

PHILIPPINE NATIONAL BANK v. SAN MIGUEL CORPORATION

G.R. No. 186063, 15 January 2014 (J. Peralta)

In 1996, San Miguel Corporation (SMC) entered into an Exclusive Dealership Agreement with
Rodolfo Goroza (Goroza) giving the latter the right to trade, deal, market or otherwise sell various SMC
beer products.
 Goroza applied for a credit line with SMC, but one of the requirements for the credit line was a letter
of credit. Thus, Goroza applied for and was granted a letter of credit by the PNB. Under the credit
agreement, PNB has the obligation to release the proceeds of Goroza's credit line to SMC upon
presentation of the invoices and official receipts of Goroza's purchases of SMC beer products to the PNB,
Butuan Branch.

With this set-up, Goroza started selling SMCs beer products availing of his credit line with PNB.
A year later, he applied for an additional credit line until it reached P4.4 Million. Initially, Goroza was able
to pay his credit purchases with SMC. However, in 1998, he became delinquent with his accounts.

Demands to pay were in vain prompting SMC to sue PNB (under the Letter of Credit) and Goroza for
sum of money. The trial court initially held Goroza solely liable, but later declared that it will be making a
separate judgment against PNB.

ISSUE: Whether or not PNB is liable under the letter of credit it issued

RULING: YES.

In a letter of credit transaction, the engagement of the issuing bank (PNB) is to pay the seller or
beneficiary of the credit once the draft and the required documents are presented to it. The so-called
"independence principle" assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract
is actually accomplished or not.

Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility
for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or
standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.

Where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to
pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit
are complied with. Precisely, the independence principle liberates the issuing bank from the duty of
ascertaining compliance by the parties in the main contract. As the principle's nomenclature clearly
suggests, the obligation under the letter of credit is independent of the related and originating contract. In
brief, the letter of credit is separate and distinct from the underlying transaction.

SECURITIES REGULATION CODE

SECURITIES and EXCHANGE COMMISSION v. PROSPERITY.COM, INC., G.R. No. 164197, January
25, 2012 (J. Abad)

This case involves the application of the Howey test in order to determine if a particular transaction is an investment
contract.

The Facts and the Case

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To make a
profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to US$294), a buyer could
acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by referring to PCI his own
down-line buyers, a first-time buyer could earn commissions, interest in real estate in the Philippines and in the
United States, and insurance coverage worth P50,000.00.

To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own down-
lines. These second tier of buyers could in turn build up their own down-lines. For each pair of down-lines, the buyer-
sponsor received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company stopped operations
after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO) against it. As it later on
turned out, the same persons who ran the affairs of GVI directed PCIs actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken
over GVIs operations. After hearing, the SEC, through its Compliance and Enforcement unit, issued a CDO against
PCI. The SEC ruled that PCIs scheme constitutes an Investment contract and, following the Securities Regulations
Code,[2] it should have first registered such contract or securities with the SEC.

The sole issue presented before the Court is whether or not PCIs scheme constitutes an investment contract that
requires registration under R.A. 8799.

The Ruling of the Court

The Securities Regulation Code treats investment contracts as securities that have to be registered with the SEC
before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where a person
invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.

The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that, for an
investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract,
transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation
of profits; and (5) profits arising primarily from the efforts of others. [11] Thus, to sustain the SEC position in this case,
PCIs scheme or contract with its buyers must have all these elements.

An example that comes to mind would be the long-term commercial papers that large companies, like San Miguel
Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these
papers or securities, he invests his money, together with others, in SMC with an expectation of profits arising from the
efforts of those who manage and operate that company. SMC has to register these commercial papers with the SEC
before offering them to investors.

Here, PCIs clients do not make such investments. They buy a product of some value to them: an Internet website of a
15-MB capacity. The client can use this website to enable people to have internet access to what he has to offer to
them, say, some skin cream. The buyers of the website do not invest money in PCI that it could use for running some
business that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use of
the website, a tangible asset that PCI creates, using its computer facilities and technical skills.

Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting people to buy
their products outside the usual retail system where products are bought from the stores shelf. Under this scheme,
adopted by most health product distributors, the buyer can become a down-line seller. The latter earns commissions
from purchases made by new buyers whom he refers to the person who sold the product to him. The network goes
down the line where the orders to buy come.

The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to down-line
sellers to bring in other customers. These can hardly be regarded as profits from investment of money under
the Howey test.

The last requisite in the Howey test is lacking in the marketing scheme that PCI has adopted. Evidently, it is PCI that
expects profit from the network marketing of its products. PCI is correct in saying that the US$234 it gets from its
clients is merely a consideration for the sale of the websites that it provides.

Goodluck and Godbless